Diss.--Münster. / Bibliography: p. 268-282.

Thesis (Ph. D.)--Colorado State University, 1991. / Includes bibliographical references (p. [167]-170).

Thesis (Ph. D.)--University of Iowa, 1993. / Includes bibliographical references (leaves 124-127).

Thesis (Ph. D.)--University of Wisconsin--Madison, 1972. / Typescript. Vita. eContent provider-neutral record in process. Description based on print version record. Includes bibliographical references.

This thesis consists of three papers addressing different aspects of financial markets and macroeconomic activities. Firm Risks, Credit, and Labor Market Fluctuations studies the effect of changes in firm risks on the cyclical properties of the labor market. I develop a general equilibrium model in which the adjustment of employment is costly. Financial frictions arise from the limited liability property of the contract between lenders and firms. The changes in firm risks alter the amount of debt that firms can borrow to finance their working capital. This mechanism amplifies labor market fluctuations and displays a countercyclical external finance premium, consistent with the empirical evidence. Shadow Banks and Stabilization Policies studies the interaction between commercial banks and shadow banks and the effect of stabilization policies. I develop a general equilibrium model in which the shadow banks obtain loans from commercial banks in the form of short-term collateralized debt. The moral hazard creates volatile leverage of shadow banks, which makes the economy more vulnerable to economic shocks. Upon an aggregate disturbance, a stabilization policy in the form of direct lending is relatively more efficient than policies aimed at the shadow-banking sector. Bank Capital and Lending: An Analysis of Commercial Banks in the United States empirically evaluates the impact of bank capital on lending patterns of commercial banks in the United States. Using two different measures of capital, namely the capital adequacy ratio and tier 1 ratio, we find a moderate relationship between bank equity and lending. We also use an innovative instrumental variables methodology that helps us overcome the endogeneity issues that are common in such analyses.

This dissertation investigates whether criticisms of standard economic models can be addressed with only minimal modifications to the assumptions. In the first essay, the Real Business Cycle (RBC) model is studied, though it is well known that it cannot match the data on money. My solution is to retain the RBC framework but add money as a sunspot variable. This leaves all the main elements of the RBC model intact and successfully replicates many features of the monetary data. The second essay examines rational choice, the foundation of economics. Laboratory experiments have exposed small violations of the theory. I introduce preference discovery costs as a way to accommodate minor violations of revealed preference while retaining rationality and optimization. An experiment tested my idea. For several subjects, my model explained their behavior while standard theory could not. However, there were many other subjects whose behavior was incompatible with both theories. The last essay is about the equity premium puzzle. The standard framework in macroeconomics predicts that the equity premium will be quite small, but this prediction is off by an order of magnitude. However, I demonstrate that the problem can be resolved if there is no market for insurance against idiosyncratic income shocks. Though it is very realistic to relax the complete markets assumption and this suffices to solve the puzzle, it is debatable if this modification is truly minimal, given the prevalence of models that rely on market completeness. / 10000-01-01

This dissertation examines issues on taxation, fiscal policy, and governance in developing countries. The three chapters of the dissertation are summarized as follows:In the first chapter, we argue that models of advanced countries are often applied to developing countries with little consideration for differences in economic structures. Deviating from this norm, we examine fiscal policy effects in a simple DSGE model structured after a developing economy with credit constraints. Building a model akin to that of a developing economy largely dominated by an agriculture sector, we allow for agents that are credit constrained and noncredit-constrained . First, we observe and provide new evidence that allowing for household heterogeneity significantly alters how fiscal policy affects consumption, output, and labor in developing countries when compared to standard representative agent models. Second, we find that shocks are more subdued in the two agent model than the representative agent model when simulated with data for developing countries.For the second chapter, we contribute to the literature on tax models and the field of public economics by examining the fiscal policy effects of a small developing country if it adopts a comprehensive progressive tax structure.We analyze this under the context where a large proportion of households are credit constrained. We discover that under a progressive tax structure, the government finances its purchases by increasing taxes for those with access to financial markets while reducing taxes of households that are credit-constrained suggesting evidence of income redistribution. Finally, we find that macroeconomic analyses are considerably different when the tax structure is progressive compared to flat thereby having several policy implications for developing countries.Lastly, in the third chapter, we use annual aggregate data for 58 developing countries covering the period 2000-2015 to investigate whether alternative elements of governance have differing effects on the relationship between total public debt and private investment. First, results suggest that total public debt is considerably lower in countries with good governance while private investment thrives in countries with favorable political regimes. Second, there is evidence of crowding out(total public debt displaces private investment) with the extent of crowding out largely related to governance. Government effectiveness and corruption are the governance in-dicators that appear to have the greatest impact on investment. Corruption is found to be the most important aspect of governance in terms of the relationship between total public debt and private investment: an increase in total public debt has the greatest effect on reducing private investment in countries with low levels of corruption

No description available.

From Introduction: It is now nearly 50 years since the appearance of Keynes's General Theory of Employment, Interest and Money and the stream of articles and books on what Keynes really meant or didn't mean shows no sign of abating. In part, this dissertation is a contribution to this voluminous literature, but what follows is hardly an attempt to provide an exhaustive interpretation. Instead the General Theory is examined from a certain angle, with the title "Equilibrium, Expectations and Information" providing the framework for the investigation. That the title has been borrowed from G.B. Richdrdson's 1959 Economic Journal article is no accident. Richardson's work has been unduly neglected and his trichotomy serves as a convenient platform from which to analyse Keynes's method and those of his interpreters, in particular the approaches stemming from the work of Clower and Leijonhufvud. The information structure of the Walrasian type of general equilibrium model is also examined as the latter forms the basis of both the neo-classical interpretation of Keynes's contribution and the rational expectations approach that will be discussed. Finally Richardson's framework is applied in an analysis of two modern classical schools of thought, namely the rational expectations approach headed by Lucas, and the neoRicardian school amongst which Garegnani, Eatwell and Milgate, for example, are prominent. In a sentence, therefore, what follows is an examination of the General Theory and certain interpretations thereof as well as an analysis of modern classical macroeconomics, with the equilibrium-expectations-information framework providing the unifying theme. As will become apparent, the framework does not consist of three watertight compartments. For example, whether a system is in equilibrium or not will depend on whether the expectations of those who have the ablility to effect change are realised. The specification of which agents have this power will depend on the information with which the model builder endows the agents in the model. In discussing this, attention is drawn to Keynes's important distinction between an entrepreneur economy and a cooperative economy. The distinction between the information available to the model builder and that with which he endows the agents in the model is also emphasized.

This thesis is comprised of four self-contained chapters. Chapters 1 and 2 examine, within a DSGE framework, the role of the financial sector in amplifying and propagating business cycles fluctuations in the macroeconomy and the role for macroeconomic policy. Chapter 3 deals with computational issues, and develops in more detail a part of the solution technique used in Chapter 2. Chapter 4 shifts towards the market for government bonds and examines whether fiscal policy reacts to changes in the cost of public debt finance. The four chapters share an overarching motivation, namely having all been motivated by the events of the current financial crisis - first in its guise as a banking crisis and then in its guise as a sovereign debt crisis. All four chapters make a contribution to the literature, whether it is to deepen the understanding of financial frictions models, how they behave, how to solve them and what the policy implications are, or whether it is to expand empirical evidence on fiscal policy behavior. Chapter 1, "Coordination Failure and the Financial Accelerator" studies the effect of liquidity problems in markets for short-term debt within a DSGE model with leveraged borrowers. Creditors (financial intermediaries) receive imperfect signals regarding the profitability of borrowers (entrepreneurs) and, based on these signals and their beliefs about other intermediaries' actions, choose between rolling over and foreclosing on the debt. Due to the uncoordinated actions of intermediaries, the incidence of rollover is suboptimal, generating endogenous capital scrapping and an illiquidity premium on external finance. As entrepreneurs become more leveraged, the magnitude of the coordination inefficiency increases as do the premiums paid on external finance. The interaction between entrepreneurial leverage and the illiquidity premium generates significant amplification of technology shocks, and predicts that periods of illiquidity in credit markets can generate sharp contractions in output. Two unconventional policy responses are analyzed. Dire.et lending to entrepreneurs is found to dampen output fluctuations. Equity injections into entrepreneurs' balance sheets, however, are significantly more powerful in dampening the contemporaneous effect of illiquidity shocks, but cause output deviations from potential to persist. Chapter 2, "The Risk Channel of Monetary Policy" examines how the design of monetary policy effects the riskiness of financial institutions aggregate portfolio structure, a mechanism referred to as the risk channel of monetary policy. I study the risk channel of moneta1y policy in a DSGE model with nominal frictions and a banking sector that has the option to issue outside equity as well as short term debt, making bank risk exposure an endogenous choice, and dependent on the (monetary) policy environment. The portfolio choice of the banks is determined by solving the model around its risky steady state. I find that banks reduce their reliance on short-term debt and decrease leverage when monetary policy shocks and prevalent. A monetary policy Taylor rule that reacts to movements in leverage in the banking system or to movements in credit spreads, incentivizes banks to increase their use of short-term debt funding and increase leverage, ceteris paribus, increasing the risk exposure of the financial sector for the real economy. The chapter finishes by searching for the optimal simple monetary policy rule in this environment. Chapter 3, "Computing the Risky Steady State in DSGE Models" describes a simple procedure for solving the risky steady state in medium-scale macroeconomic models. This is the "point where agents choose to stay at a given date if they expect future risk and if the realization of shocks is Oat this date" Coeurdacier, Rey, and Winant (2011) . This new procedure is a direct method which makes use of a second-order approximation of the macroeconomic model around its deterministic steady state, thus avoiding the need to employ an iterative algorithm to solve a fixed point problem. The methodology advanced in this chapter is used in Chapter 2. Chapter 4, "Cost of Borrowing Shocks and Fiscal Adjustment", based on joint work with Federic Holm-Hadulla and Nadine Leiner-Killinger, examines whether capital markets impose fiscal discipline on governments. We investigate the responses of fiscal variables to a change in the interest rate paid by governments on debt using a panel of 14 European countries over several decades. This is done in the context of a panel vector autoregressive (PVAR) model, using sign restrictions via the penalty function method of Mountford and Uhlig (2009) to identify structural cost-of-borrowing shocks. Our baseline estimation shows that a one percentage point rise in the cost of borrowing leads to a cumulative expansion of the primary balance-to-GDP ratio of approximately 1.9 percentage points over 10 years, with a fiscal response only significantly evident two years following the shock. We also find that the majority of fiscal adjustment takes place via a rise in government revenue rather than a cut in primary expenditure. The size of the total fiscal adJ'ustment ~ ' however, is insufficient to avoid the gross government debt-to-GDP ratio from rising as a consequence of the shock. Sub-dividing our sample we also find that the EMU countries post-1992 (the year of the Maastricht Treaty) raised thei primary balances more aggressively in response to a cost-of-borrowing shock than they did prior to 1992.